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Rectangle Setup Strategy

Scalp with smart money — intermediate difficulty

📊 intermediate 📍 The Rectangle Setup strategy is suited for liquid instruments such as Forex (e.g

Strategy Overview

The Rectangle Setup is a reversal scalping strategy based on Smart Money Concepts, identifying high probability ranges and exploiting institutional order flow. It's used for intraday scalping, primarily in liquid markets like Forex, Gold, and Indices. The strategy involves drawing a rectangle from a weakness candle to define entry, stop-loss, and take-profit levels.

Market Context — When This Strategy Works

The Rectangle Setup strategy is suited for liquid instruments such as Forex (e.g., EUR/USD, GBP/USD), Gold (XAUUSD), and Indices (e.g., Nasdaq futures/CFDs), particularly during the London and New York sessions or their overlap, where high volume and volatility provide the best conditions for the strategy.

Introduction to the Rectangle Setup

The Rectangle Setup strategy is built on the concept that institutional order flow creates identifiable structural patterns, specifically 'ranges' or 'rectangles', which mark points of exhaustion before reversals. A single rectangle drawn from the close to the wick of a 'weakness candle' defines the entire trade, including entry zone, stop-loss, and take-profit.

Intraday scalping strategy
Based on Smart Money Concepts
Exploits institutional order flow

Core Concepts and Logic

The strategy relies on understanding impulse-correction cycles, high probability range validation, and the role of weakness candles as triggers. It positions the trader ahead of the retail consensus by entering on the 1-minute chart the moment a candle closes outside the rectangle.

Impulse-correction cycles
High probability range validation
Weakness candle as trigger

Key Concepts and Indicators

Key concepts include Market Structure (Break of Structure, Market Structure Shift), Liquidity Concepts (Liquidity Sweep, Equal Highs/Lows), and Imbalance/Fair Value Gap (FVG). The rectangle tool, drawn on the 15-minute higher timeframe, represents the 'trigger zone'. Optional filters include a 50 or 200 period MA for directional bias.

Break of Structure (BOS)
Liquidity Sweep
Fair Value Gap (FVG)

High Probability Range Criteria

A valid range must satisfy four criteria: anchored at a key level, aggressive Break of Structure, fresh (untested), and optionally containing an imbalance. These criteria significantly increase the probability of a successful trade.

Anchored at a key level
Aggressive Break of Structure
Fresh range
Imbalance present

Execution and Risk Management

Execution involves identifying a high probability range, confirming a weakness candle, drawing the rectangle, and entering on a 1-minute candle close outside the rectangle. Risk management includes placing stops above/below the wick of the weakness candle and targeting a minimum 3:1 reward-to-risk ratio.

Identify high probability range
Confirm weakness candle
Draw rectangle
Enter on 1-minute close outside rectangle

Entry Rules

Identify a high probability range on the 15-minute chart
Confirm a weakness candle that fails to close above/below a high/low
Draw a rectangle from the close to the wick of the weakness candle
Enter on a 1-minute candle close outside the rectangle

Exit Rules

Target a minimum 3:1 reward-to-risk ratio
Consider partial profits at 3R with the remainder running to the next structural level
Optionally, use a fixed R-multiple (3R, 4R, 5R) for exit

Risk Management

Place stop-loss above/below the wick of the weakness candle
Use a risk per trade of 0.5% to 1% of the account balance
Position size based on risk per trade and stop-loss distance

Key ICT Concepts Used

Practice the Rectangle Setup Strategy

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